In the matter of Courtenay House Capital Trading Group Pty Ltd

[2017] NSWSC 883

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Courtenay House Capital Trading Group Pty Ltd [2017] NSWSC 883
Hearing dates:	16 May 2017
Decision date:	16 May 2017
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Order that First and Second Defendants be wound up, amend earlier asset preservation orders, and make ancillary orders.
Catchwords:	CORPORATIONS – Winding up – Application for winding up by court on the just and equitable ground – where Australian Securities and Investments Commission investigating matters being, or connected with, the affairs of the companies – where companies apparently conducting business in breach of the Corporations Act 2001 (Cth)
Legislation Cited:	- Corporations Act 2001 (Cth), ss 461(1)(k), 462, 464, 472(1), 911A - Court Suppression and Non-publication Orders Act 2010 (NSW)
Cases Cited:	- ASIC v ABC Fund Managers Ltd [2001] VSC 383; (2001) 39 ACSR 443 - ASIC v ActiveSuper Pty Ltd (No 2) [2013] FCA 234; (2013) 93 ACSR 189 - ASIC v CME Capital Australia Pty Limited (No 2) [2016] FCA 544 - ASIC v International Unity Insurance Pty Ltd [2004] FCA 1059; (2004) 22 ACLC 1416 - ASIC v Kingsley Brown Properties Pty Ltd [2005] VSC 506 - Galanopoulos v Moustafa [2010] VSC 380 - Re Courtenay House Capital Trading Group Pty Ltd [2017] NSWSC 467
Category:	Procedural and other rulings
Parties:	Australian Securities and Investments Commission (Plaintiff) Courtenay House Capital Trading Group Pty Ltd (First Defendant) Courtenay House Pty Ltd (Second Defendant) Tony Iervasi aka Anthony Iervasi, Antonio Iervasi and Tony Ieruasi (Third Defendant) David Sipina (Fourth Defendant) Athan Papoulias (Fifth Defendant) Proactive Property Services Pty Ltd (Sixth Defendant) TheNowGroup.Com.Au Pty Ltd (Eighth Defendant)
Representation:	Counsel: D R Stack (Plaintiff) D L Cook SC (Third and Sixth Defendants) J C Giles SC (Fourth and Seventh Defendants) N F Case (Fifth and Eighth Defendants)   Solicitors: Australian Securities and Investments Commission (Plaintiff) Go To Court (Third and Sixth Defendants) JSM Lawyers & Notaries (Fourth and Seventh Defendants) Armstrong Legal (Fifth and Eighth Defendants) Tully & Chiper (Interested Party – Ms E Iervasi)
File Number(s):	2017/119478

Judgment – ex tempore

1. By Amended Originating Process filed today, by leave, the Plaintiff, the Australian Securities and Investments Commission (“ASIC”) applies for an order under s 461(1)(k) of the Corporations Act 2001 (Cth) that each of the First Defendant, Courtenay House Capital Trading Group Pty Ltd (“CH Trading”) and the Second Defendant, Courtenay House Pty Ltd (“CHPL”) be wound up. ASIC also seeks orders under s 472(1) of the Corporations Act that Messrs Jahani and McInerney of Grant Thornton be appointed as liquidators of the First and Second Defendants and certain ancillary orders.

2. The First and Second Defendants have not appeared in the proceedings. The orders are not opposed by the Third Defendant, Mr Tony Iervasi, who is either the sole director of both companies, or one of two directors of one company and the sole director of the other, and is either the sole or a substantial majority shareholder in both companies. The application is also not opposed by the Fourth Defendant, Mr David Sipina, in his capacity as party to the proceedings, although Mr Sipina has contested the accuracy of public records that record him as being a director of CH Trading.

3. Nonetheless Mr Stack, who appears for ASIC in the application, rightly recognises that an order winding up a company requires the exercise of a judicial discretion and cannot be made by consent without the Court satisfying itself that it has a proper basis. Of course, the fact that the order is not opposed by those who are directly interested in the companies, at least as directors and shareholders, may mean that the Court is more readily persuaded that it is properly made.

4. Mr Stack has drawn my attention to the summary of the relevant principles in ASIC v CME Capital Australia Pty Limited (No 2) [2016] FCA 544 and I gratefully adopt that summary, without needing to repeat it. I will, however, refer to some of the applicable principles. Section 461(1)(k) of the Corporations Act relevantly provides that the court may order the winding up of a company where it is of the opinion that it is just and equitable that the company be wound up. Section 462 of the Corporations Act provides that ASIC may make such an application under s 464 of the Act, which in turn provides that ASIC may apply for the winding up of a company where it is investigating matters being, or connected with, the affairs of the company. ASIC is investigating matters being, or connected with, the affairs of each of the First and Second Defendants in this case.

5. In ASIC v CME Capital Australia Pty Limited above, Moshinsky J noted that, as had been observed in ASIC v Kingsley Brown Properties Pty Ltd [2005] VSC 506 at [96], the classes of conduct that justify the winding up of a company on the just and equitable ground are not closed. His Honour observed, by reference to authority, that a company may be wound up on the just and equitable ground where there is a “justified lack of confidence in the conduct and management of the company’s affairs such as to give rise to a real risk to the public interest that warrants protection.” His Honour also referred to the observations of Warren J in ASIC v ABC Fund Managers Ltd [2001] VSC 383; (2001) 39 ACSR 443 at 469–470 that relevant matters include a lack of confidence in the conduct and management of the company’s affairs; a risk to the public interest that warrants protection; and a reluctance on the part of the courts to wind up a solvent company. In ASIC v International Unity Insurance Pty Ltd [2004] FCA 1059; (2004) 22 ACLC 1416 at [135]–[139], Lander J noted that it may be appropriate to wind up a company on the just and equitable ground if mismanagement, misconduct, or lack of confidence in the conduct and management of a company's affairs is established, or if there have been breaches of the provisions of the Corporations Act. In Galanopoulos v Moustafa [2010] VSC 380 at [32], Sifris J observed that a winding up order on the just and equitable ground may be established on the basis that the court lacks confidence in the propensity of the company’s controllers to comply with their obligations. In ASIC v ActiveSuper Pty Ltd (No 2) [2013] FCA 234; (2013) 93 ACSR 189 at [23] Gordon J in turn noted that risks to the public interest may include a failure to carry on a business candidly and in a straightforward manner with the public or to prevent repeated breaches of the law.

6. I should recognise that a number of these observations are directed to risk to the public, and it might be suggested that the risk to the public can be minimised, in respect of future conduct, by orders of the kind that ASIC has already obtained in these proceedings, which restrict activities of the First and Second Defendants in respect of their dealings with the public. That, however, seems to me to be only a partial answer to the relevant issues. While it is possible to restrict the risk to which the public may be exposed by injunctive relief restraining particular conduct, it remains the case, as recognised in the observations of Lander J in ASIC v International Unity Insurance Pty Ltd above, that there are occasions where past conduct may support a winding up order. In such a case, the Court may lack confidence in the future management of a company, by reason of the manner in which its past management has been conducted, and also because there will be circumstances in which a winding up order, and the appointment of an independent insolvency practitioner, would itself promote the public interest in resolution of matters arising from past mismanagement.

7. In ASIC v CME Capital Australia Pty Ltd above, Moshinsky J also observed that the public interest considerations applicable to a winding up order on the just and equitable ground are emphasised when ASIC applies for a winding up order, in its capacity as a corporate regulator, and particularly in circumstances where the company's dealings have involved dealings with the public, whether by way of fund management or by the provision of financial services. In this case, the matters involving the First and Second Defendants’ conduct include both the raising of funds from the public, in the form of a managed investment scheme, and the provision of financial services by way of foreign currency trading, at least in some part of the First and Second Defendants’ activities.

8. With that background, these proceedings were commenced on 21 April 2017, when ASIC relied on affidavits of Ms Harris affirmed 20 April 2017 and Ms Taylor sworn 19 April 2017. I referred to the basis of the application in my judgment delivered on 21 April 2017 ([2017] NSWSC 467) and observed that it seemed to me that there was then sufficient evidence, at an interlocutory level, to establish a serious question to be tried as to ASIC's concerns, and that evidence was sufficient to warrant interim relief of the serious and intrusive kind that was then sought by way of injunctive orders and freezing orders. I then noted that it appeared, subject to any explanation that may be given by the Defendants, that they were holding themselves out as carrying on a foreign currency trading and commodities trading business which, on the face of it, would require licensing under s 911A of the Corporations Act, or that they were authorised representatives, in circumstances where it appeared that any such authorisation had lapsed. I also noted that it appeared, again subject to any explanation that might be offered by the Defendants, that there was a substantial possibility or probability that the transactions involved in the matter amounted to the conduct of an unregistered managed investment scheme, in parallel to a smaller scheme that had operated as a registered managed investment scheme.

9. ASIC relies, in the application today, on a further affidavit of Ms Molesworth sworn 11 May 2017, which sets out the matters which are presently the subject of its investigation, and refers to a transcript of examination of Mr Iervasi, who is a director of both the First and Second Defendants. That transcript has been tendered, subject to an order made under the Court Suppression and Non-publication Orders Act 2010 (NSW). I have regard to the content of the transcript, but having regard to the matters of public interest which supported the making of that order, it is preferable that I do not refer in any detail to the matters addressed in that transcript.

10. The matters on which ASIC relies in order to support a winding up order are, first, that the First and Second Defendants were conducting a common business, involving at least the conduct of some trading activities. It seems to me that the evidence as it stands provides a basis to conclude that the conduct of that business was such that the larger and unregistered fund was required to be, and was not, registered as a managed investment scheme. The evidence suggests that the business was conducted on a significant scale and that a large number of members of the public may be affected by dealings with the business involving significant sums of money. Again, it is preferable that I do not go further than that general observation given the suppression orders that have been made.

11. The evidence as it presently stands also establishes that an Australian Financial Services Licence or authorised representative status was required in respect of the conduct of the business, and that they were not held for at least part of the period. To the extent that representations were made to investors as to the manner in which their income was being generated from trading activities falling within different trading strategies, the evidence as it stands supports a conclusion that those representations were misleading or deceptive or likely to mislead or deceive, and that the matters which caused those representations to be misleading or deceptive will have placed investors at significant risk.

12. I appreciate that this is a less fulsome account of events than would ordinarily be provided when making an order of the significance of a winding up order. It is important, however, to recognise that ASIC's investigation is ongoing, and it is preferable that nothing be said in this judgment that would prejudice either that investigation or any proceedings which may flow from that investigation in due course. That has been recognised by the orders that I have made under the Court Suppression and Non-publication Orders Act, and I have approached this judgment on that basis. To the extent that parties to the proceedings have had access to the confidential exhibit on which ASIC relies, then the basis on which I have reached the conclusions that I have reached, as summarised in this general way, will be apparent to them.

13. I am satisfied that ASIC has established that orders should be made to wind up each of the First and Second Defendants, CH Trading and CHPL respectively. Those orders should be made both for the protection of the public interest, and because of a justifiable lack of confidence by the regulator in the activities of those companies, and the fact that there is a continuing risk to the public, albeit that risk has been substantially reduced, going forward, by way of restraining and freezing orders. I am also satisfied that this is a case where there is a strong need for the appointment of an independent insolvency practitioner who may take control of the First and Second Defendants’ assets and deal with their creditors, in order to bring about an orderly realisation of their assets and to discharge their liabilities, including liabilities to investors to the maximum extent possible. For these reasons, I make orders in accordance with paragraphs 3, 4, 5, and 6 of the short minutes of order initialled by me and placed in the file, together with a further order that the orders made today be entered forthwith.

14. ASIC also seeks a further order that several of the asset preservation orders made by the Court on 1 May 2017 be dissolved so far, and only so far, as they apply to each of the First and Second Defendants, which will now be placed under the control of the liquidator. Mr Stack submits, and I accept, that that order is properly made so far as it will facilitate the liquidators taking steps to bring in the assets of the company and commencing the winding up process. Accordingly, I also make order 7 in accordance with the consent orders initialled by me and placed in the file.

15. On 1 May 2017, the Court made orders, which remain in force, prohibiting the Defendants, by themselves and their servants, agents and employees from taking particular steps to deal with specified assets. Those orders were subject to a common, and necessary, exception which did not prevent the Defendants from paying or otherwise incurring a liability for legal costs reasonably incurred. The Defendants now seek, and ASIC does not oppose, a further order which will create a further exception to those orders, such that the orders will not prevent the Defendants from transferring money to a legal practitioner's trust account on account of legal costs and legal disbursements to be reasonably incurred. It seems to me that that order does not involve any change of substance in the restraint, but only a change of mechanism, so far it will allow funds to be transferred to a trust account, in advance of the expenditure of legal costs and disbursements, but will not permit them to be spent unless the relevant legal costs and legal disbursements fall within the description that they are reasonably incurred. On that basis, I am satisfied that order 8 may properly be made and I also make that order.

16. I make a further order, which is presently order 10, that there be liberty to apply, including in respect of orders binding Mr Iervasi made by the Family Court of Australia on two business days' notice specifying the relief sought and I will, for good order’s sake, also make order 1 which dealt with leave to file an Amended Originating Process. The result is that all the orders in the short minutes of order have now been made.

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Decision last updated: 05 July 2017